Federal Budget & Tax Changes

On the surface, the 2011-12 budget didn't make significant changes. However, as usual, the fine print revealed some nasties.

Phasing out of dependent spouse offset:

The first nasty is the phasing out of the Dependent Spouse Tax Offset for taxpayers with a dependent spouse born on or after 1 July 1971. This could reduce a refund by up to $2300. This measure is set to eliminate one of the barriers to workforce participation by gradually removing the tax concession for taxpayers with a non‑working spouse and no children.

Taxpayers with an invalid or permanently disabled spouse, supporting a carer, or people who are eligible for the zone, overseas forces and overseas civilian tax offsets will not be affected by this change.

The second nasty is the Government will remove access to the Low Income Tax Offset (LITO) for unearned income of minors, effective from 1 July 2011.

The measure will discourage high income earners allocating their income to children under 18 years of age. The removal of this access to LITO will only impact unearned income such as dividends, interest, rent, royalties, income from property and trust distribution to minors.

Children under 18 will continue to be able to use the LITO to reduce income tax on their employment income. Unearned income of minors who are orphans or disabled, as well as compensation payments and inheritances received by minors, will not be affected by this measure.

This measure will have a significant impact on tax outcomes for affected taxpayers, adding around $1000 tax for each dependent child eligible for distributions from trusts etc.